Working Paper Series: Special Edition of 2016 to 2018 Interns

Executive Summary The Property Insurance industry in the Eastern Caribbean Currency Union (ECCU) has been, on several occasions, marked by a number of large-loss events such as the volcanic eruption in Montserrat as well as hurricanes and floods in many other countries. For example, after Hurricane Ivan in Grenada, devastation was widespread with damages totaling 200 per cent of the country’s GDP. As a result, claim payments increased by 126.0 per cent, causing premiums to increase by as much as 42.0 per cent. More recently, Hurricane Maria, one of the strongest hurricanes ever recorded in the Caribbean, caused more than 60 casualties in Dominica and over EC$1.78b in total damages to building. The damage to the social sector accounted for more than 35.0 per cent of this cost. In recent years, there has been an unprecedented rise in the frequency and severity of natural disasters plaguing the region. As the impact of climate change continues to be felt across the globe, the financial and societal costs associated with this phenomenon continue to increase. Consequently, the role of insurance has become increasingly necessary. Without a concerted effort by heads of government and policy makers to improve hazard and climate risk management, these events can have adverse impacts on the affordability of insurance and the ability of households and businesses to recover from the devastation caused. In the absence of appropriate risk mitigation techniques, including enforcement of building codes, land use controls and contingency and resilience funding, the resultant large catastrophe losses will likely lead to escalating insurance costs, which creates a risk for governments, businesses and households. In an effort to provide a better mechanism for dealing with risks, CARICOM Heads of Government requested the World Bank’s assistance in considering the special needs and concerns of developing countries resulting from the adverse effects of climate change in the area of insurance. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) is the result of this collaboration which provides CARICOM governments with an insurance instrument to partially address their soaring vulnerability. It is noteworthy that while the CCRIF provides critical assistance to governments in the aftermath of a natural disaster, it only represents a short-term solution to their liquidity needs. In addition, to the extent that both the intensity and frequency of natural disasters increase over the medium to long term, ECCU member governments are likely to see a concomitant increase in their premium payments for the insurance facility.

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